So US government staffers are back at work, the debt ceiling has been raised and a quick slide back into recession has been avoided. But the 16-day federal government shutdown has nevertheless cost the world’s largest economy dearly.
There are the detrimental economic effects. The forecasting firm Macroeconomic Advisers estimates the shutdown reduced economic growth by about 0.3 per cent in the fourth quarter, or about $US12 billion. Standard & Poor’s has put the cost higher at around 0.6 per cent of GDP or $US24 billion in lost output. S&P says fourth-quarter growth will now be at a near-trend 2.4 per cent rather than the above-trend 3.0 per cent previously forecast.
More than a dozen key data releases on the US economy were delayed by the shutdown and will be rescheduled, starting with nonfarm payrolls next Tuesday.
Actual data collection by the statistical agencies has been delayed and the quality of some reports may be compromised because information that would normally have been collected during October, particularly for key inflation and employment reports, was not.
Consumer price data, which is based on field staff visiting shops, will have a reduced sample size for this month and that will affect comparisons in future months, making the reports less reliable. The Bureau of Labor Statistics’ household survey, which produces the unemployment rate, was not carried out last week and may end up with a smaller sample size.
Then there is the harder-to-measure intangible impact on confidence. And it's not just the uncertainty for businesses making decisions on hiring and investing for the months and years ahead, or for investors unsure whether US Treasuries still represent a safe alternative to riskier assets.
Consumer confidence fell to a nine-month low in October, just ahead of the busy holiday shopping season, and private-sector surveys showed declines in auto sales, mortgage applications and chain stores over the past two weeks. Furloughed government employees will receive back pay, but contractors won’t.
With the next deadlines set for January 15 and February 7, this week’s temporary resolution means only a brief reprieve from uncertainty. Businesses are making plans for 2014 and will be disinclined to take fresh risks against a backdrop of renewed wrangling of a dysfunctional Congress.
And then there is the damage to the standing of the United States among its creditors and the rest of the world. The second time in two years that the United States nearly defaulted on its obligations, coupled with the intransigence of both sides until the final hour, raised doubts about “the full faith and credit” of the US, Fitch Ratings said as it put the US on rating watch for a possible downgrade.
China’s Xinhua state news agency lost no opportunity to call for the “de-Americanisation” of the world economy by accelerating the move away from the US dollar as the world’s reserve currency. Like the gradual decline of the standing of sterling in the post-war years, that could take decades and neither the euro nor the managed yuan are yet plausible alternatives. China, as the world’s largest foreign holder of US debt with $US1.28 trillion, according to official data, has its own hands tied.
Fitch raised a similar point. The agency argued that the prolonged negotiations over raising the debt ceiling risked undermining confidence in the US dollar, while the repeated brinkmanship dented “confidence in the effectiveness of the US government… and in the coherence and credibility of economic policy”.
Let’s hope the House Republicans were listening.